Module -2

Organizational Buying
Behaviour

Organizational buying behavior

Organizational buying is entirely
different from that of consumer
buying
It involves a through & deep analysis
Organizations purchase products
ranging from high complex
machinery, small components,
bought on regular basis & those that
are rarely purchased

Organisation Buying
Organization buying is the decisionmaking process by which formal
organizations establish the need for
purchased products and services and
identify, evaluate, and choose among
alternative brands and suppliers.

 Some of the characteristics of organizational buyers are:

1.Consumer market is a huge market in millions of consumers where organizational
buyers are limited in number for most of the products.
2. The purchases are in large quantities.
3. Close relationships and service are required.
4. Demand is derived from the production and sales of buyers.
5. Demand fluctuations are high as purchases from business buyers magnify fluctuation in
demand for their products.
6. The organizational buyers are trained professionals in purchasing.
7. Several persons in organization influence purchase.
8. Lot of buying occurs in direct dealing with manufacturers.

Differences between organizational &

consumer markets

Consumers market

Organizational Market

Less time spent on

purchasing process

More time spent in

purchasing process

Large number of
consumers buyer

Organizational buyers
are few in number

Quantity of purchase
is comparatively low

Quantity of purchase
is more

Segmentation on
geographic,
demographic and
psychographic factors

Segmentation on
Purchasing approach,
situational factors,
personal characteristics

Organisational Buying Process

Problem recognition (Need)
General need description
Product specification
Supplier search
Acquisition and analysis of Proposals
Evaluation of proposals and supplier selection
Order routine specification
Performance review
6

Organizational buying
situation
A business-to-business
sales situation has numerous key
differences from a business-to-consumer situation.
Marketing managers must understand how a basic buying
center works and the different types of rebuy situations.
Business Buying
Marketing managers have to deal with a different buying
situation when they sell directly to businesses.
The buying center of a business can complicate how a sale
occurs.
The marketing manager will also have to deal with three
different types of rebuys - new buy, modified rebuy and
straight rebuy.

Organizational buying
situation
New task
Straight rebuy
Modified rebuy

1.Straight rebuy
In this buying situation, only purchasing
department is involved.
They get an information from inventory control
department or section to reorder the material or
item and they seek quotations from vendors in an
approved list.
The "in-suppliers" make efforts to maintain product
and service quality.
The "out-suppliers" have to make efforts to get
their name list in the approved vendors' list and for
this purpose they have to offer something new or
find out any issues of dissatisfaction with current
suppliers and promise to provide better service.

2.Modified rebuy
In this buying situation, there is a
modification to the specifications of the
product or specifications related to delivery.
Executives apart from the purchasing
department are involved in the buying
decisions.
The company is looking for additional
suppliers or is ready to modify the
approved vendors list based on the
technical capabilities and delivery
capabilities.

3. New task buy

In this situation, the buyer is buying the product for the first
time.
As the cost of the product or consumption value becomes
higher, more number of executives are involved in the
process.
The stages of awareness, interest, evaluation, trial, and
adoption will be there for the products of each potential
supplier.
Only the products which pass all the stages will be on the
approved list and price competition will follow subsequently.

4. Systems buy
Systems buying is a process in which the organization
gives a single order to a single organization for supplying a
full system.
A process in which an organization selects only one
supplier for all its raw material requirements .
The buying organization knows that no single party is
producing all the units in the system.
But it wants the system seller to engineer the system,
procure the units from various vendors and assemble,
fabricate or construct the system.

5. System selling: a process in which a

seller himself sells all the raw
materials needed by a customer

Main types of buying situations in

B2B

Straigtht rebuy Routine decision, repetitive

process. component suppliers for the automotive
industry little or no new information

Modified rebuy More complicated but less

sophisticated: cars, trucks, computers, consulting
modified rebuys are often treated too
uncautious
New task Calls for thorough research.
Industrial plant highest level of uncertainty.
Strategic new tasks are of extreme strategic and
financial importance (aircrafts, military
equipment, infrastructure)
15

Buying Center Concept

Webster and Wind in the model they proposed to describe organizational buying process,
identified the organizational buying process as a team process and called the team or the
buying decision-making unit of the organization as buying center.
The buying center consists of all persons of the organizations who are involved in the
buying process playing one or the other seven roles:

1. Initiators
2.Users
3. Influencers
4. Deciders
5. Approvers
6. Buyers
7.Gatekeepers.

1. Users
The persons who use the item. Say for safety gloves
the operators.

2. Initiators
The persons who request the purchase. The safety
officer may initiate the request for the purchase.
3. Influencers
The influencers are the tech personnel who help
develop specs and evaluate alternate products.
They are important when products involve new
and advanced technology.

4. Buyers
They are the person who actually do the buying transaction.

5. Gatekeepers
Gatekeepers are typically secretaries and tech personnel.
They control the flow of information to and among others within
the buying center.
Buyers who deal directly with a vendor are gatekeepers
6. Deciders
People who decide on product requirements and suppliers. It is the
final approval for product specifications and suppliers' list.

7. Approvers
Persons who approve the purchase. In the case of safety gloves,
the personal manager may have the power to approve.

Major Influences on Business Buyers

1.

Environmental factors

Expected demand for the product that the buying organization is

selling, expected shortages for the item, expected changes in
technology related to the item etc. are the environmental factors that
will have an effect.
2. Organizational factors

Changes in purchasing department organization like centralized

purchasing, decentralized purchasing and changes in purchasing
practices like long-term contracts, relationship purchasing,
zero-based pricing, vendor-performance evaluation are the organization
factors of importance to marketers.

3.

Interpersonal factors
These factors are the relationship between buyers and sales
representatives of various competitor companies.
4. Individual factors
These factors related to the buyer. What sort of ways of
interacting and service are appreciated by the buyers and what
ways are considered as irritants? Marketers have to understand
the reactions of buyers.

Stages in the B2B Buying Process

1. A need is recognized.
Someone recognizes that the organization has a need that can
be solved by purchasing a good or service.
Users often drive this stage, although others can serve the role
of initiator.
In the case of the electronic textbook, it could be, for example,
the professor assigned to teach the online course.
However, it could be the dean or chairman of the department
in which the course is taught.

2. The need is described and quantified.

Next, the buying center, or group of people brought
together to help make the buying decision, work to put
some parameters around what needs to be purchased.
In other words, they describe what they believe is
needed, the features it should have, how much of it is
needed, where, and so on.
For more technical or complex products the buyer will
define the products technical specifications.
Will an off-the-shelf product do, or must it be customized?
Users and influencers come into play here.
In the case of our electronic book, the professor who
teaches the online course, his teaching assistants, and the
colleges information technology staff would try to
describe the type of book best suited for the course.
Should the book be posted on the Web as this book is?
Should it be downloadable? Maybe it should be compatible
with Amazons Kindle.

3. Potential suppliers are searched for.

At this stage, the people involved in the buying process
seek out information about the products they are looking
for and the vendors that can supply them.
Most buyers look online first to find vendors and
products, then attend industry trade shows and
conventions and telephone or e-mail the suppliers with
whom they have relationships.
The buyers might also consult trade magazines, the
blogs of industry experts, and perhaps attend Webinars
conducted by vendors or visit their facilities.
Purchasing agents often play a key role when it comes to
deciding which vendors are the most qualified.
Are they reliable and financially stable? Will they be
around in the future? Do they need to be located near
the organization or can they be in another region of the
country or in a foreign country? The vendors that dont
make the cut are quickly eliminated from the running.

 4. Qualified suppliers are asked

to complete responses to
requests for proposal (RFPs).
Each vendor that makes the cut is sent a request for
proposal (RFP), which is an invitation to submit a bid to
supply the good or service.
An RFP outlines what the vendor is able to offer in terms
of its productits quality, price, financing, delivery,
after-sales service, whether it can be customized or
returned, and even the products disposal, in some cases.
Good sales and marketing professionals do more than just
provide basic information to potential buyers in RFPs.
They focus on the buyers problems and how to adapt
their offers to solve those problems.

 5. The proposals are evaluated and

supplier(s) selected.
During this stage, the RFPs are reviewed and
the vendor or vendors selected.
RFPs are best evaluated if the members agree
on the criteria being evaluated and the
importance of each.
Different organizations will weigh different parts
of a proposal differently, depending on their
goals and the products they purchase.
The price might be very important to some
sellers, such as discount and dollar stores.
A scorecard approach can help a company rate
the RFPs.

 Selecting Single versus Multiple Suppliers.

Sometimes organizations select a single supplier to provide
the good or service.
This can help streamline a companys paperwork and other
buying processes.
With a single supplier, instead of negotiating two contracts
and submitting two purchase orders to buy a particular
offering, the company only has to do one of each.
Plus, the more the company buys from one vendor, the bigger
the volume discount it gets.
Single sourcing can be risky, though, because it leaves a firm
at the mercy of a sole supplier.
What if the supplier doesnt deliver the goods, goes out of
business, or jacks up its prices? Many firms prefer to do
business with more than one supplier to avoid problems such
as these.
Doing business with multiple suppliers keeps them on their
toes. If they know their customers can easily switch their
business over to another supplier, they are likely to compete
harder to keep the business.

 6. An order routine is established.

This is the stage in which the actual order is put
together.
The order includes the agreed-upon price, quantities,
expected time of delivery, return policies, warranties,
and any other terms of negotiation.
The order can be made on paper, online, or sent
electronically from the buyers computer system to the
sellers.
It can also be a one-time order or consist of multiple
orders that are made periodically as a company needs
a good or service.
Some buyers order products continuously by having
their vendors electronically monitor their inventory for
them and ship replacement items as the buyer needs
them.

7. A post-purchase evaluation is
conducted and the feedback provided
to the vendor.
Just as consumers go through an evaluation period after they purchase
goods and services, so do businesses.
The buying unit might survey users of the product to see how satisfied they
were with it.
Cessna Aircraft Company, a small U.S. airplane maker, routinely surveys
the users of the products it buys so they can voice their opinions on a
suppliers performance.
Some buyers establish on-time performance, quality,
customer satisfaction, and other measures for their vendors
to meet, and provide those vendors with the information
regularly, such as trend reports that show if their
performance is improving, remaining the same, or
worsening. (The process is similar to a performance
evaluation you might receive as an employee.)

Buying Models
Industrial buyers are influenced by many factors when they make
buying decisions.
Business buyers influenced by organisational factors or taskoriented objectives ( like best product quality, or dependable
delivery, or lowest price)
Personal factors or non-task objectives ( like promotion,
increments, job security , personal treatment, or favour )
There are two models (or frame work) available to provide a
comprehensive and integrated picture of the major factors that
combine to explain organisational buying behavior
these are :
1. The Webster and wind model
2. The sheth model

1. The Webster and wind model of

organization buying behavior
.

It consider four sets of variables which effect the buying

decision making process in firm .

.
.
.
.
.

These are environmental,

organisational ,
buying center and
individual

1. The environmental variables

includes physical, technological,
political , legal, labour unions,
cultural, customer demands ,
competition and supplier
information
For example : in a recessionary
economic condition, industrial firms
minimize the quantity of item
purchased.
The environmental factors influence
the buying decisions of individual
organization

2. Organization variables
The organization variables include
objectives, goals, organization structure ,
purchase policies and procedures , degree
of centralization in purchasing, and
evaluation and reward system.
These variables particularly influence the
composition and functioning of the buying
centre and also the degree of centralization
or decentralization in the purchasing
function in the buying organization

 The functioning of buying centre is

influenced by the individual variables
The output of the group decisionmaking process of the buying centre
includes solutions to the buying
problems of the organization and
also the satisfaction of personal
goals of individual members of the
buying centre .
However , this model is weak in
explaining the specific influence of
the key variables.

The sheth model

Prof. Jagdish N Sheth developed sheth model in 1973 .
This model emphasizes the joint decision making by two or
more individuals, and the psychological aspects of the
decision making individuals in the industrial buying behavior .
The model includes three components and situational factors,
which determine the choice of a supplier or a brand
in the buying decision making process in an organisation .

 Aspects of Sheth model

1. Psychological world of individual :As the participants in the
organisational buying decision process are personnel from
different departments such as purchase , manufacturing, quality,
control etc each has own individual/ departmental expectations.
2. Factors affecting joint decision-making : 2 types
a. Autonomous Decisions : These decisions are those taken by
only one individual in the firm like , say the purchase officer
b. Joint decisions : these are taken by experts representing different
departments in the firm
3. Process of joint decision making
The choice of a supplier or brand is the outcome of a systematic
decision making process in an organization setting . When the
decisions are taken jointly , interdepartmental conflicts are
difficult to avoid .

Conflict in Decision making

Substantive conflict is defined as a
breakdown in the decision making
process. That is, an alternative cannot be
chosen. Therefore, conflict manifests
itself in a disagreement over alternatives
(positions).
However, conflict has its roots causes in
one of two types of disagreements:
Criteria, interests, goals
Cause/Effect beliefs, theories,
assumptions

METHODS OF CONFLCIT RESOLUTION

Forcing:Conflict is resolved when one party is successful in achieving
its own interests at the expense of the other party's interest through the
use of high relative power. Often linked to the personality trait of
aggressiveness.
Withdrawal:Conflict is resolved when one party attempts to satisfy
the concerns of other by neglecting its own interests or goals. Generally
associated with a passive personality.
Smoothing:An unassertive approach in which both parties neglect the
concerns involved by sidestepping the issue or postponing the conflict
or choosing not to deal with it.
Compromise:An intermediate approach in which partial satisfaction is
sought for both parties through a middle ground position that reflects
mutual sacrifice.
Integrative Decision Making/Problem solving:Cooperative mode
that attempts to satisfy the interests of both parties. In terms of
process, this is generally accomplished through identification of
"interests" and freeing the process from initial "positions". Once
interests are identified, the process moves into a phase of generation of
creative alternatives designed to satisfy of interests (criteria) identified.
SeeDecision Makingnotes for further clarification

Ethics in purchasing
Business ethics(also corporate
ethics ) is a form ofapplied
ethicsorprofessional ethicsthat
examines ethical principles and
moral or ethical problems that arise
in a business environment. It applies
to all aspects of business conduct
and is relevant to the conduct of
individuals and entire organizations.

Ethics aspects in purchasing

Use of power
Corruptions
Declaring interest
Payment of agreed terms
Supplier relation and competition
Transparency , Confidentiality and
Fairness

 Thank You